Marcus contributes property with an adjusted basis of $80,000 and a fair market value of $100,000 to a newly formed business entity. If the entity is an S corporation and the transaction qualifies under § 351, the S corporation's basis for the property and the shareholder's basis for the stock are: Asset Basis Stock Basis
A) $ 80,000 $100,000
B) $100,000 $ 80,000
C) $ 80,000 $ 80,000
D) $100,000 $100,000
E) None of the above.

Question

Quizplus · Accepted Answer

Under § 351, if a shareholder contributes property to a newly formed corporation (which elects to be an S corporation), the shareholder will not recognize any gain or loss on the contribution of property in exchange for stock if certain requirements are met. The adjusted basis of the property is carried over to the corporation as its basis in the property. Therefore, the S corporation's basis for the property is $80,000. The shareholder's basis for the stock is also $80,000, which is the adjusted basis of the property contributed.

Marcus Contributes Property with an Adjusted Basis of $80,000 and a Fair